Earlier this week I showed you how Fortune Hi Tech Marketing appears to be a pyramid scheme, rather than a legitimate “direct sales” company or multi-level marketing opportunity. Today we are taking a look at the recruiting aspect, which is what I believe makes FHTM cross over the line into the world of pyramid scams and Ponzi schemes. Last time I cited claims from participants in FHTM that recruiting was the true focus of the “business,” and today we’ll look at that a little more in depth.

There are so many ways to get people to buy into the idea of joining an MLM. These days, you will hear about unemployment and financial pressures, and how companies like Fortune Hi Tech Marketing offer an opportunity for unlimited earnings. The recruiters will tell you that even if you don’t get rich with FHTM, you can still make some money to help pay bills.

Be your own boss… make an unlimited income… control your own financial future… provide a better life for your family… pay a few bills each month… make money from things you’re already buying… All of these things sound attractive to almost anyone, and that’s why they are used in recruiting pitches.

Former Fortune Hi Tech Marketing independent representative Joseph Isaacs said in an interview with USA Today that “.. the company targets desperate unemployed people, Hispanic immigrants and others who are struggling to make ends meet.” Of course, those still in Fortune spin that. The article reports: “Joanne McMahon, a national sales manager speaking at a training session USA TODAY attended here, said it is the people who can’t afford the fee to join Fortune who need the company the most.”

One common “hook” that multi-level marketing companies use to get people in is the “low cost” of startup. Representatives boast that $299 to start your own business is cheap! What other business can you start for such a small cost? Yet add up $299 for every recruit (plus another $250 for each recruit that signs up for the “optional” package), and you can see that FHTM can take in tons of money from recruiting.

Recruiters often tout the ability to “work from home” while earning a living. Aside from the fact that almost no one earns a living wage in multi-level marketing, the truth is that people are not earning their money “from home.” These schemes take constant recruiting of new representatives and cultivation of new customers (if a person is actually trying to sell products or services). That can only be done by being out-and-about, meeting new people, and trolling for new marks. The recruiting usually involves bringing the potential victim to a meeting where someone in the upline gives a marketing presentation in an attempt to get the person to sign up with the company. This is not done “from home.”

And there is the “make money off things you already buy” argument… Amway uses the argument for its cleaning products. Mary Kay does it with cosmetics. Usana does it with vitamins. And so FHTM does it with services like satellite television, cell phone service, and the like. Consumers are supposed to ignore the fact that these products and services typically come at a much higher price through MLMs than similar quality products and services widely available to consumers in stores and on the internet.

Beware: Multi-level marketing companies like to tout their relationships with well-known corporate names. They claim that such companies wouldn’t align with them if they were a pyramid scheme. But these claims sometimes hold no water. In the case of Fortune, companies have rushed to distance themselves from FHTM:

But when pressed, Mills named his top selling product.  “With Dish, we’re one of their top two or three sellers.” A letter from Dish’s legal department said the company is not a partner of Dish, but a third party contractor, which anyone can become. GE, Travelocity and Home Depot have written similar letters denying any direct relationship with Fortune.

Like the bosses, and reality-inverting propagandists, of the ‘Amway’ mob, the bosses, and reality-inverting propagandists, of the Fortune Hi-Tech Marketing’ mob have steadfastly pretended that:

Their direct selling company is perfectly lawful and is associated with all manner of trusted household-names in the USA. They cannot be held responsible if some rogue ‘Independent FHTM Business Owners’ do not obey the company’s own rules which oblige them regularly to sell significant quantities of good-value products, and services, to the public for a profit.

Of course, there’s also the argument that multi-level marketing is perfectly legal, and if the company was doing anything wrong, law enforcement would come after them. Fortune can’t claim to be squeaky clean in this regard after being pursued by several state attorneys general (I’ll talk about that in a future post), but since the cases were settled and FHTM was allowed to continue doing business, they essentially got mostly a pass from governments.

As with other MLMs, Fortune touts articles in magazines like “Success Magazine” as proof of their legitimacy. They forget to mention that this magazine is dedicated to getting paid to write fluff pieces for MLM companies to use in recruiting. USA Today reported: “Companies that are featured on the cover of Success From Home agree to buy at least $330,000 worth of issues, according to a description of the prerequisites obtained by USA TODAY.”

Fortune HTM has also been featured in other places, many of them nothing more than pieces their public relations people placed to  give them an air of legitimacy. These are clever recruiting tools which seem to give credibility to the company, and representatives are sure to mention them every chance they get.

So how does a representative for FHTM make money? One newspaper article backs up the idea that money is made from recruiting new marks into Fortune, rather than selling services:

Fortune documents show its sales reps are paid $100 to $480 for recruiting customers who pay fees to become representatives and buy or sell a small number of products. They receive commissions of up to 1 percent — or less than $1 on a $100-a-month cellphone bill — on products and services, which they are often encouraged to buy for themselves or give away. Former sales managers including Isaacs and Yvonne Day, a plaintiff in the suit seeking class-action status, say their product commission checks were often less than $20, while income from bonuses totaled several thousand dollars. A lawsuit filed by Isaacs alleges 82 percent of 100,000 Fortune representatives last year “failed to earn a single residual commission over $20 despite making personal purchases.”

Recruiters into FHTM need to bring in new recruits to make their money. People paid $299 to sign up, $250 for an “optional” package (I’m betting all recruiters recommend it!) and an annual renewal fee of $199. There are monthly fees in addition, so you can see the costs for representatives adding up.

After multiple complaints about the fees, late last year Fortune started making some changes to the fees (but coincidentally still kept the focus on recruiting, rather than product sales):

Fortune has been changing its national policies, including lowering the entrance fee outside Montana from $299 to $199 to $99 in the last four months — following complaints and legal charges. In a taped conference call with his team members on Sept. 29, Morton said the company would no longer pay recruitment bonuses until managers have 12 people on their teams, which places them at the regional sales manager level. To have 12 people on a team, a person has to recruit three people who recruit three people who get three more people who bring in another three. USA TODAY listened to the call.

Commissions on products were also increased from 0.25% to either 0.50% or 1%, which would boost residuals from product sales but still make Fortune’s product commissions extremely low compared with other companies using multilevel compensation plans.

The Fortune HiTech Marketing program doesn’t seem to be much different than the Ignite/Stream Energy multi-level marketing plan that came under fire in the media. Stream Energy / Ignite was revealed to have few retail customers (2 per representative), giving credence to the argument that it’s simply a recruiting pyramid. In these types of scams, there is little focus on actually selling a product or service, with the real focus being on recruiting new representatives (which is how the reps really get paid).

What about the purchases of products and services? Representatives claim that FHTM doesn’t even bother to train representatives on selling the products.

But there are products and services being purchased by people participating in FHTM. After all, it’s required if you want to “qualify” for a commission check. Fortune requires salespeople to accumulate “points,” which are earned when they sell products or services to others through FHTM, or they make those purchases themselves. Like so many other multi-level marketing companies, it appears that participants are purchasing these products themselves (rather than retailing to third-party customers).

I suppose these representatives may want to purchase the products and services themselves. However, my experience in talking with thousands of former MLM distributors is that they wouldn’t have made most of those purchases if they didn’t need to “qualify” for commission checks. USA Today reported:

“You could sell the products to others, but nobody ever does that,” says Isaacs, who is being sued by Fortune for trademark infringement and filed a counterclaim calling Fortune an “unlawful pyramid scheme.” “In reality, it isn’t taught that way. All new managers buy their first three, five or 10 points to immediately qualify their business.”

Clearly the focus is not on selling, but on recruiting. The reality is that most multi-level marketing companies are endless chain recruitment schemes. They live and die by the recruiting, and the products or services they market are simply the “front” to make these schemes appear to abide by state and federal laws.